What Is Estate Planning and Why Is It Important?

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What Is Estate Planning and Why Is It Important?

Your estate plan can be viewed as a series of steps to be taken so that, after you die, your property will be handled in a way that recognizes your values and wishes regarding your survivors and any charitable interests you may have. When people start thinking about these things, some important lifetime concerns often come to mind, too, such as preparing for possible physical or mental disability. So, those issues are frequently addressed as well when one plans his or her estate.

The purpose of your estate plan

A good estate plan is designed to bring reality in line with your desires to the greatest extent possible, given the practical problems and limitations you face. The steps in the plan may include candid family discussions, drafting a will and trust, changing the beneficiary designations on some accounts, buying life insurance, etc. As for "problems," experience shows that the most common ones are insufficient money to fund all of one’s goals, and survivors who do not act as hoped or expected.

Taken step by step, the process is not nearly as daunting as many people fear.

What not to think

If you want your wishes to be fulfilled at your death without starting World War III, avoid the following age-old invitations to disaster:

• "Everybody already knows who’s supposed to get what."
• "In my desk drawer is a list of my possessions and the persons to whom they should be given."
• "I don’t have much. The kids can just come in and divide it among themselves however they decide."
• "Last year I put all my money in a joint account with my oldest daughter. After I die, she’ll split it three ways with her brothers."
• "All I have is life insurance (or ’All I have is an IRA.’) My son is the only beneficiary listed on the form, but I want him to share it with his sister."

In all the often-heard statements above, people think they have their affairs in order, but they really have no estate plan. These well-intentioned folks are asking for family squabbles and other problems.

For many people, too, an important part of estate planning is seeing to it that their wishes for children or grandchildren are implemented. This includes the choice of a guardian for minor children, as well as guidance as to how the kids should be cared for and how funds destined for their benefit should be managed and distributed. Even many people with adult children are likewise concerned about money management.

Important people to appoint

Do you care who your personal representative will be? Somebody must be given responsibility and the necessary authority to "wrap up" your affairs—pay debts, as well as preserve, gather and distribute your assets in accordance with your wishes. This person is called an executor if you have a will, or a trustee if you have a trust. Your personal representative should be a trustworthy person (or bank) with common sense, good judgment and the fairness of a referee.

If you don’t appoint someone

Without an estate plan, your "wrapper-upper" will be chosen by the court, and might not be the person you would have wanted.

Doing it yourself

A word about "doing-it-yourself" is in order. A great deal of self-help is possible by the lay person who takes time to educate him or herself. But people do need attorneys in most estate planning, probate and other legal situations "at least for a consultation, or to answer some questions.

Will-preparation software and online services can produce adequate results in simple situations. Often, however, these approaches don’t fully deal with the particular details, contingencies and very specific issues that are likely to be critically important to your family. Some clients use software programs just to learn a little and "get something on paper" before consulting a lawyer. This is a fine idea.